The Future of Oil: Geology Versus Technology

By Marcelle Chauvet, Jack G. Selody, Douglas Laxton, Michael Kumhof, Jaromir Benes, Ondrej Kamenik, Susanna Mursula

May 1, 2012

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Format: Chicago

Marcelle Chauvet, Jack G. Selody, Douglas Laxton, Michael Kumhof, Jaromir Benes, Ondrej Kamenik, and Susanna Mursula. The Future of Oil: Geology Versus Technology, (USA: International Monetary Fund, 2012) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We discuss and reconcile two diametrically opposed views concerning the future of world oil production and prices. The geological view expects that physical constraints will dominate the future evolution of oil output and prices. It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows. The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view. We present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in forecasting oil prices and oil output out of sample. Its point forecast is for a near doubling of the real price of oil over the coming decade. The error bands are wide, and reflect sharply differing judgments on ultimately recoverable reserves, and on future price elasticities of oil demand and supply.

Subject: Commodities, Demand elasticity, Inflation, Oil, Oil prices, Oil production, Output gap, Prices, Production

Keywords: Adjustment cost, Bayesian econometrics, Cost share, Elasticities of demand and supply, Exhaustible resources, Fossil fuels, Global, Hubbert’s Peak, Inflation, Long-run price elasticities of oil demand and supply, Oil, Oil depletion, Oil price, Oil price growth rate, Oil prices, Oil production, Output gap, Price channel, Price effect, Price elasticities of demand and supply, Price elasticities of oil demand and supply, Price elasticity, Price mechanism, Share of energy, Supply shock, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/109
Stock No:

WPIEA2012109
ISBN:

9781475503302
ISSN:

1018-5941

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